Nuturing and challenging private companies for sustained BUSINESS AND impact, a case of VIETNAM BUSINESS CHALLENGE FUND

Nuturing and challenging private companies for sustained BUSINESS AND impact, a case of VIETNAM BUSINESS CHALLENGE FUND Author: Vietnam Business Challenge Fund Country: Vietnam Sector: Agriculture, Energy, WASH, Infrastructure CONTEXT Vietnam has a rapidly growing economy, experiencing nearly a two-digit growth rate over the last decade However, Vietnam still has a high percentage of households in poverty The hardest to reach to deliver benefits from such growth and employment are the rural poor These groups predominantly rely on agriculture for a living, are highly vulnerable to the impacts of climate change and are disadvantaged due to a lack of services, inadequate infrastructure, limited involvement in and access to markets Although the most in need, there is little investment and development addressing the needs of the rural poor; improved availability and access to services and products, such as roads, energy and improved water and sanitation, and job creation Such investments are often associated with high levels of risk due to substantial costs and uncertain returns; the private sector is often unwilling or unable to absorb such risks and therefore chooses not to invest An external stimulus is needed to support innovative yet risky private sector investment in areas that can deliver sustainable models of growth Several private sector development initiatives have been conducted in the last decade in Vietnam, demonstrating the potential of businesses to effectively generate and lead poverty reduction solutions However, there are still several challenges that need to be addressed They are: Now that Vietnam is a middle-income country, official development assistance will continue to fall whilst systemic pockets of poverty remain There are donors in Vietnam working on private sector development, but they mainly play a facilitation role, such as improving access to finance, improving the business environment and delivering business development services CLIENTS METHOD / SNV INTERVENTION Private sector companies, both national and multinational operating in Vietnam SNV is the fund manager of the Vietnam Business Challenge Fund (VBCF) which is capitalised by UKAid through the UK Department for International Development (DFID) VBCF is a specialised fund designed to support private sector companies in Vietnam to develop new business models that deliver both commercial benefits for the company and social impact for low income populations, including job creation, income improvements and access to affordable goods and services SNV introduces an innovative approach; complementary to private equity funds and impact investing style funds, which fills the gap between financial return-oriented funds and social return oriented funds, that not only promotes an inclusive business approach within agriculture, infrastructure & basic services and low carbon growth initiatives, but also promotes capacity building at private sector level, links with public policies and aims to generate systematic change by scaling up models for sustainable inclusive growth VBCF develops and nurtures innovative business ideas from private companies, which have the potential to generate sustainable benefits for the low-income population It provides advisory services, mentoring and non-reimbursable funding of up to 49% of the total investment in selected Inclusive Business inititatives in Vietnam through competitive open calls VBCF aims to: • Promote inclusion and innovation in the following sectors: i) Agriculture, ii) Low Carbon Growth and iii) Infrastructure and Basic Services; • Overcome business risks and reduce transaction costs associated with including low income people in the value chain of companies; • Remove barriers and improve the operation of value chains to facilitate inclusion of low income people in the core business of participating companies; • Create incentives for companies to offer access to goods and services that include low income people in their value chain; • Promote a better business climate for the private sector in Vietnam, addressing poverty eradication activities under innovative marketbased and commercial mechanisms Following two call for proposal rounds, VBCF received and assessed more than 400 applications, from which 21 inclusive business initiatives were selected for investment Increased private sector VBCF supports companies’ value chains, including: - Japonica rice investment into Inclusive - Corn – biochar Business initiatives: With a - F1 hybrid corn seeds - Medicinal plants non-reimbursable investment - F1 horticulture seeds of approximately GBP 3.5 - MSC certificed sustainable scallops restoration - USDA certified organic rice million, VBCF will leverage - 2nd generation probiotics a total private investment capital of approximately GBP 10 million by the end of VBCF In 2014, over GBP 3.5 million had been invested by the private sector This makes an impressive nonreimbursable funding/private investment ratio of 1:3 Successful Inclusive Business models provide market access to low income people and sustainable supply chains for businesses: In 2014, eight inclusive and sustainable business models were set up in the agriculture and food industry Successful Inclusive Business models VBCF supports the development and providing basic products and services distribution of basic products/services: - Cook stoves to low income people and new/ - LED light bulbs market entries to businesses: new - Recycled plastic based biogas digester - Mobile banking products and innovative services - Centralized water treatment plant have been introduced to low income - Others people Over million products adapted or tailor-made to low income people’s needs have been produced and sold IMPACT Improvement of business growth VBCF supports inclusive businesses to increase sales, expand markets or enter new markets, apply new technologies and introduce innovative products and services to the market The VBCF portfolio investees profile competitive and attractive financial and social returns for the commercial and impact investment industry Improvement of living conditions of low-income people Low-income groups benefit through the implementation of VBCF investees’ inclusive business projects as producers, suppliers, distributors and customers DFID’s expected social return on investment by the end of the VBCF includes the creation of 5,000 new jobs, 60,000 beneficiaries with increased income, and 200,000 low income people with access to basic products and services In 2014, VBCF business initiatives have created 4,000 new jobs, income increases for 34,000 people and access to basic goods and services for over 1.4 million low income beneficiaries Reduction of environmental impacts VBCF-invested companies have introduced environmentally friendly products such as the emission-free brick molding machine, the biomass cookstove, the biogas digester from recycled materials and power saving light bulbs Two businesses under VBCF’s agriculture portfolio contribute to environmental preservation through (i) restoration of sea resources and (ii) utilisation and production of biochar from corncobs and agricultural byproducts LESSONS LEARNED Engaging private sector • • • The Challenge fund is an effective mechanism that can be used to mobilise private sector resources to leverage limited development funds for development purposes Attracting attention of private sector actors requires professional and effective marketing communications, especially direct marketing Effective communications plays an important role in engaging the business community, sparking their innovative ideas, to turn these ideas into reality Engaging low income groups • • • Engaging low income groups in the inclusive business ventures of companies requires trust building, good knowledge of low income market needs and preferences, and different kinds of support such as financial access and hands-on technical guidance Economies of scale make the difference in working with low income people, which often involves high transaction costs and is labourintensive The name of the game in low-income markets is not higher prices for suppliers or lower prices for consumers It is about aligning suppliers with market demand and maximising productivity, quality and value addition; while for consumers it is about developing and delivering affordable and quality tailor made products and services Implementation • • • Innovations involve risks, so it is important to take possible failures into account and be well prepared, both operationally and financialy, to make the best use of the funds available Markets change rapidly, so planning and implementation should be flexible to meet the business requirements Private companies have limited information on low-income markets; limited access to finance; can lack skills in sales, supply chain management, finance and administration specific to operating in low income markets Systemic change and long term impact • • TESTIMONIALS Priorities should be given to large/medium leading companies to deliver impact at scale Ecosystem development perspective requires long term vision and mix sources of investment (commercial and developmental) “We are very excited at DFID to be participating in Vietnam Business Challenge Fund with SNV Our objective is to provide the kind of finance that is not available from other sources, and the kind of technical support that is difficult for private sector companies to access This is just the beginning, from our perspective All we want to is to get other people interested in it, get the government, other donors, and a wider range of private sector partners to take ideas that have been generated by the Challenge Fund and move them forward, take them to the next level, deliver them at scale, unleash the potential of the private sector in a way that hasn’t been seen before in Vietnam” Jim Carpy, Head of UK Department for International Development, Vietnam “Without VBCF my business idea would never ever have come true” Mr Ngo Duy Dong, Director of Green Environment Biogas Company producing and selling biogas digesters made from recycled plastic STANDARD DATA Project: Vietnam Business Challenge Fund Donor: UKAid - DFID Dates: 05/2011 - 02/2014 Budget (GBP): 4,900,000 Program staff to 12/2014 11 Partners Vietnam Chamber of Commerce & Industry of Vietnam, SPARK Contact details Javier Ayala Executive Manager - Vietnam Business Challenge Fund Corporate Lead – Global Inclusive Business Services Email: jayala@snvworld.org For more about our work in Vietnam, visit: www.snvworld.org/Vietnam ... Program staff to 12/2014 11 Partners Vietnam Chamber of Commerce & Industry of Vietnam, SPARK Contact details Javier Ayala Executive Manager - Vietnam Business Challenge Fund Corporate Lead – Global... INTERVENTION Private sector companies, both national and multinational operating in Vietnam SNV is the fund manager of the Vietnam Business Challenge Fund (VBCF) which is capitalised by UKAid through... important to take possible failures into account and be well prepared, both operationally and financialy, to make the best use of the funds available Markets change rapidly, so planning and implementation